SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) |
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) |
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File No. 0-28178
CARBO CERAMICS INC.
(Exact name of registrant as specified in its charter)
DELAWARE | 72-1100013 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification Number) |
6565 MacArthur Boulevard
Suite 1050
Irving, Texas 75039
(Address of principal executive offices)
(972) 401-0090
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
As of April 30, 2002, 15,066,750 shares of the registrant's Common Stock, par value $.01 per share, were outstanding.
CARBO CERAMICS INC.
Index to Quarterly Report on Form 10-Q
PART I. FINANCIAL INFORMATION | PAGE |
Item 1. Financial Statements | |
Consolidated Balance Sheets - | 3 |
March 31, 2002 (Unaudited) and December 31, 2001 | |
Consolidated Statements of Income (Unaudited) - | 4 |
Three months ended March 31, 2002 and 2001 | |
Consolidated Statements of Cash Flows (Unaudited) - | 5 |
Three months ended March 31, 2002 and 2001 | |
Notes to Consolidated Financial Statements (Unaudited) | 6-7 |
Item 2. Management's Discussion and Analysis of Financial | 8-9 |
Condition and Results of Operations | |
PART II. OTHER INFORMATION | |
Item 1. Legal proceedings | 10 |
Item 2. Changes in securities | 10 |
Item 3. Defaults upon senior securities | 10 |
Item 4. Submission of matters to a vote of security-holders | 10 |
Item 5. Other information | 10 |
Item 6. Exhibits and reports on Form 8-K | 10 |
Signatures | 11 |
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARBO CERAMICS INC.
CONSOLIDATED BALANCE SHEETS
ASSETS | ||
March 31, | December 31, | |
2002 | 2001 | |
(Unaudited) | ||
($ in thousands) | ||
Current assets: | ||
Cash and cash equivalents | $ 34,387 | $ 31,547 |
Investment securities | 6,000 | 6,000 |
Trade accounts receivable | 22,882 | 22,157 |
Inventories: | ||
Finished goods | 9,679 | 9,465 |
Raw materials and supplies | 5,933 | 5,944 |
Total inventories | 15,612 | 15,409 |
Prepaid expenses and other current assets | 440 | 514 |
Deferred income taxes | 900 | 875 |
Total current assets | 80,221 | 76,502 |
Property, plant and equipment: | ||
Land and land improvements | 944 | 944 |
Buildings | 7,795 | 7,488 |
Machinery and equipment | 93,185 | 92,522 |
Construction in progress | 14,537 | 11,657 |
Total | 116,461 | 112,611 |
Less accumulated depreciation | 31,820 | 30,084 |
Net property, plant and equipment | 84,641 | 82,527 |
Total assets | $ 164,862 | $ 159,029 |
LIABILITIES AND SHAREHOLDERS' EQUITY | ||
Current liabilities: | ||
Accounts payable | $ 2,644 | $ 3,572 |
Accrued payroll and benefits | 1,764 | 2,491 |
Accrued freight | 909 | 1,139 |
Accrued utilities | 562 | 848 |
Accrued income taxes | 3,470 | 2,304 |
Other accrued expenses | 845 | 773 |
Total current liabilities | 10,194 | 11,127 |
Deferred income taxes | 11,888 | 10,960 |
Shareholders' equity: | ||
Preferred Stock, par value $0.01 per share, 5,000 shares authorized: | ||
None outstanding | - | - |
Common Stock, par value $0.01 per share, 40,000,000 shares authorized: | ||
15,062,250 and 14,949,600 shares issued and outstanding at March 31, | ||
2002 and December 31, 2001, respectively | 150 | 149 |
Additional paid-in capital | 57,122 | 54,967 |
Retained earnings | 85,518 | 81,834 |
Accumulated other comprehensive income (loss) | (10) | (8) |
Total shareholders' equity | 142,780 | 136,942 |
Total liabilities and shareholders' equity | $ 164,862 | $ 159,029 |
The accompanying notes are an integral part of these statements.
3
CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
(Unaudited)
Three months ended | ||
March 31, | ||
2002 | 2001 | |
Revenues | $ 29,311 | $ 34,174 |
Cost of goods sold | 17,633 | 21,128 |
Gross profit | 11,678 | 13,046 |
Selling, general and administrative expenses | 3,847 | 3,685 |
Start-up costs | 43 | - |
Operating profit | 7,788 | 9,361 |
Other income: | ||
Interest income | 156 | 218 |
Other, net | 12 | 27 |
168 | 245 | |
Income before income taxes | 7,956 | 9,606 |
Income taxes | 2,927 | 3,426 |
Net income | $ 5,029 | $ 6,180 |
Earnings per share: | ||
$ 0.34 | $ 0.42 | |
Diluted | $ 0.33 | $ 0.41 |
Other Information: | ||
Dividends declared per common share | $ 0.09 | $ 0.075 |
The accompanying notes are an integral part of these statements.
4
CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
Three months ended | ||
March 31, | ||
2002 | 2001 | |
Operating activities | ||
Net income | $ 5,029 | $ 6,180 |
Adjustments to reconcile net income to net cash | ||
Provided by operating activities: | ||
Depreciation | 1,736 | 1,682 |
Deferred income taxes | 903 | 570 |
Gain on sale of equipment | - | (2) |
Changes in operating assets and liabilities: | ||
Trade accounts receivable | (725) | (6,320) |
Inventories | (203) | 1,613 |
Prepaid expenses and other current assets | 74 | 199 |
Accounts payable | (928) | 754 |
Accrued payroll and benefits | (727) | (831) |
Accrued freight | (230) | (232) |
Accrued utilities | (286) | 437 |
Accrued income taxes | 1,398 | 1,618 |
Other accrued expenses | 72 | (381) |
Net cash provided by operating activities | 6,113 | 5,287 |
Investing activities | ||
Purchases of property, plant and equipment | (3,850) | (540) |
Proceeds from sale of equipment | - | 2 |
Refund of capital expenditure | - | 973 |
Net cash provided by (used in) investing activities | (3,850) | 435 |
Financing activities | ||
Proceeds from exercise of stock options | 1,924 | 3,080 |
Dividends paid | (1,345) | (1,103) |
Net cash provided by financing activities | 579 | 1,977 |
Net increase in cash and cash equivalents | 2,842 | 7,699 |
Effect of exchange rate changes on cash | (2) | - |
Cash and cash equivalents at beginning of period | 31,547 | 14,757 |
Cash and cash equivalents at end of period | $ 34,387 | $ 22,456 |
Supplemental cash flow information | ||
Interest paid | $ - | $ - |
Income taxes paid | $ 626 | $ 1,238 |
The accompanying notes are an integral part of these statements.
5
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of CARBO Ceramics Inc. have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. The results of the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2001 in cluded in the Company's Form 10-K Annual Report for the year ended December 31, 2001.
The consolidated financial statements include the accounts of CARBO Ceramics Inc. and its wholly owned subsidiaries: CARBO Ceramics Sales Corporation, CARBO Ceramics (UK) Limited and CARBO Ceramics (Mauritius) Inc. The accounts of CARBO Ceramics (Mauritius) Inc. include its wholly owned subsidiary, CARBO Ceramics (China) Company Limited. CARBO Ceramics Sales Corporation was formed on July 31, 1996 under the laws of Barbados. CARBO Ceramics (UK) Limited was formed on December 19, 1997 under the laws of Scotland. CARBO Ceramics (Mauritius) Inc. was formed on May 14, 2001 under the laws of Mauritius. CARBO Ceramics (China) Company Limited was formed on May 8, 2001 under the laws of the People's Republic of China. All significant intercompany transactions have been eliminated.
2. Dividends Paid
On January 8, 2002, the Board of Directors declared a cash dividend of $0.09 per common share payable to shareholders of record on January 31, 2002. The dividend was paid on February 15, 2002.
3. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2002 and 2001 ($ in thousands, except per share data):
2002 | 2001 | |
Numerator for basic and diluted earnings per share: | ||
Net income | $ 5,029 | $ 6,180 |
Denominator: | ||
Denominator for basic earnings per share-- | ||
weighted-average shares | 14,984,883 | 14,799,788 |
Effect of dilutive securities: | ||
Employee stock options | 112,706 | 166,282 |
Dilutive potential common shares | 112,706 | 166,282 |
Denominator for diluted earnings per share-- | ||
adjusted weighted-average shares | 15,097,589 | 14,966,070 |
Basic earnings per share | $ 0.34 | $ 0.42 |
Diluted earnings per share | $ 0.33 | $ 0.41 |
During the three months ended March 31, 2002, employees exercised stock options to acquire 112,650 common shares at a weighted-average exercise price of $17.08 per share. The Company recognized a related income tax benefit of $895,000, of which $232,000 was credited directly to shareholders' equity and $663,000 offset a previously recognized deferred tax benefit.
6
During the three months ended March 31, 2001, employees exercised stock options to acquire 176,350 common shares at a weighted-average exercise price of $17.46 per share. The Company recognized a related income tax benefit of $1,374,000, which was credited directly to shareholders' equity.
4. Refund of Capital Expenditure
During the first quarter of 2001, the Company received a $1.0 million capital expenditure refund on a claim related to the construction of its manufacturing facility in McIntyre, Georgia. $973,000 was recorded as a direct reduction of the cost of machinery and equipment capitalized prior to receipt of the refund.
5. Legal Proceedings
The Company is subject to legal proceedings, claims, and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable, management does not expect that the ultimate cost to resolve these matters will have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Three Months Ended March 31, 2002
Operating results for the first quarter 2002 were encouraging considering the significant decline in North American rig count versus last year's first quarter. In an environment where the U.S. natural gas rig count was 25 percent lower than the first quarter of 2001, demand for our products was strong in several key markets where we have demonstrated the value created through the use of our high-conductivity proppants.
Revenues. Revenues for the first quarter 2002 were $29.3 million, a 14 percent decline from the first quarter 2001. The decline was due to an 18 percent decrease in total sales volume, including a 22 percent decline in domestic sales volume versus the first quarter 2001. International sales volume for the quarter declined 6 percent compared to the same period a year earlier. A decline in overseas shipments was partially offset by record sales volume in Canada where sales increased 42 percent despite a 21 percent drop in the number of rigs actively drilling in the region. The improvement in Canada was due to an increase in market share versus alternative proppants and an increase in the amount of proppant pumped per well.
Gross Profit. Gross profit for the quarter was $11.7 million or 40 percent of sales as compared to $13.0 million or 38 percent of sales for the first quarter of 2001. Gross profit margins improved due to lower natural gas costs in our manufacturing operations combined with significantly higher production rates and reduced maintenance spending at the McIntyre, Georgia manufacturing facility. Gross profit margin in the first quarter of 2002 was negatively impacted by reduced production rates at all of our manufacturing facilities in response to a decrease in natural gas drilling activity brought on by a decline in general economic conditions in the U.S.
Selling, General and Administrative Expenses and Start-Up Costs. Selling, general and administrative expenses and start-up costs totaled $3.9 million for the first quarter of 2002 and $3.7 million for the corresponding period of 2001. The increase was primarily due to higher legal expenses. Start-up costs of $43,000 in 2002 represent organizational and administrative expenses associated with construction of our China facility, which is expected to be operational by the fourth quarter of 2002.
Liquidity and Capital Resources
Cash and cash equivalents totaled $34.4 million as of March 31, 2002, an increase of $2.9 million from December 31, 2001. The Company generated cash from operations of $6.1 million and realized $1.9 million proceeds from employee exercises of stock options. Uses of cash included capital spending of $3.8 million and cash dividends of $1.3 million. Major capital spending included $2.0 million on the China manufacturing facility.
The Company's current intention, subject to its financial condition, the amount of funds generated from operations and the level of capital expenditures, is to continue to pay quarterly dividends to shareholders of its Common Stock at the rate of $0.09 per share.
The Company maintains an unsecured line of credit of $10.0 million. As of March 31, 2002, there was no outstanding debt under the credit agreement. The Company anticipates that cash on hand, cash provided by operating activities and funds available under its line of credit will be sufficient to meet planned operating expenses, tax obligations and capital expenditures through 2002. The Company also believes that it could acquire additional debt financing, if needed. Based on these assumptions, we believe that the Company's fixed costs could be met even with a moderate decrease in demand for the Company's products.
8
Forward-Looking Information
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. This Form 10-Q, the Company's Form 10-K and Annual Report to Shareholders, any other Form 10-Q or any Form 8-K of the Company or any other written or oral statements made by or on behalf of the Company may include forward-looking statements which reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from such statements. This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning, among other things, the Company's prospects, developments and business strategies for its operations, all of which are subject to certain risks, uncertainties and assumptions. These risks and uncertainties include, but are not limited to, changes in the dema nd for oil and natural gas, the development of alternative stimulation techniques and the development of alternative proppants for use in hydraulic fracturing. The words "believe", "expect", "anticipate", "project" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, each of which speaks only as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been informed by the United States Department of Justice that its investigation into possible anti-competitive activity in the proppants industry has been closed.
ITEM 2. CHANGES IN SECURITIES
On February 13, 2002, the Company adopted a shareholder rights plan and created the Series A Preferred Stock. Under the shareholder rights plan, the Company declared a dividend of one Series A Preferred Stock purchase right for each outstanding share of Common Stock of the Company to shareholders of record on February 25, 2002. For a more detailed description of the shareholder rights plan and the Series A Preferred Stock, see Exhibit 4 under Item 6 of this Form 10-Q.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
The following exhibits are filed as part of the Quarterly Report on Form 10-Q:
Exhibits
4. Rights Agreement dated as of February 13, 2002 between CARBO Ceramics Inc. and Mellon Investor Services LLC, as Rights Agent (incorporated by reference to exhibit 1 to the registrant's Form 8-A Registration Statement filed with the Securities and Exchange Commission on February 25, 2002).
b. Reports on Form 8-K
On February 4, 2002, the Company filed a report on Form 8-K concerning its press release announcing fourth quarter and full-year 2001 earnings.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CARBO CERAMICS INC.
/s/ C. MARK PEARSON
C. Mark Pearson
President and Chief Executive Officer
/s/ PAUL G. VITEK
Paul G. Vitek
Sr. Vice President, Finance and
Chief Financial Officer
Date: May 10, 2002